Business Value of Agile Methods Using Real Options Analysis Dr. David F. Rico, PMP, CSM Website: http://davidfrico.com LinkedIn: http://www.linkedin.com/in/davidfrico Facebook: http://www.facebook.com/profile.php?id=1540017424

Author DoD contractor with 25+ years of IT experience B.S. Comp. Sci., M.S. Soft. Eng., & D.M. Info. Sys. Large gov’t projects in U.S., Far/Mid-East, & Europe Published six books & numerous journal articles Expertise in metrics, models, & cost engineering Adjunct at Argosy, UMUC, & George Washington Six Sigma, CMMI, ISO 9001, DoDAF & DoD 5000 Agile Program Management & Lean Development

Agenda  OVERVIEW of Briefing Intro to Agile Methods Types of Agile Methods Practices of Agile Methods Studies of Agile Methods Costs of Traditional Methods Costs of Agile Methods Metrics for Agile Methods Comparison of Agile Methods Summary of Business Value

Purpose of Briefing Provide an overview of the business value of Agile Methods using ROI and Real Options: Provide a brief introduction to agile methods Illustrate some of the major agile methods/practices Summarize the results of major cost/benefit studies Talk a little bit about the cost of quality (CoQ) Introduce cost and benefit models for agile methods Describe metrics to estimate the ROI of agile methods Compare the costs and benefits of agile methods Summarize what we’ve learned about agile methods

What is Business Value? Val-ue (văl-'yōō): An amount, quantity, rate, magnitude, or desirability; Economic worth An economic estimation of the tangible worth of the organizational assets such as buildings and equipment An appraisal of intangible assets such as knowledge, experience, skills, patents, processes, and methods A technique for evaluating the costs and benefits of investments in a business, operations, or personnel The economic impact of deploying a new product development approach such as agile methodologies The total life cycle costs of institutionalizing lean and agile project management techniques in an enterprise

Some of Today’s Challenges Chal-lenge (chăl-'ənj): Contest, competition, fight, defy, confront, or dispute; To question 21st century systems are more software-intensive and highly-complex with numerous invisible parts Technology is evolving at an exponential rate of change which severely limits the planning horizon Global competitiveness has intensified and new military threats are rapidly emerging all of the time Customers have unpredictable needs and necessitate decision-making flexibility throughout the project Today’s 21st-century post-industrial information age knowledge workers need agile methods and tools

 INTRO to Agile Methods Agenda Overview of Briefing  INTRO to Agile Methods Types of Agile Methods Practices of Agile Methods Studies of Agile Methods Costs of Traditional Methods Costs of Agile Methods Metrics for Agile Methods Comparison of Agile Methods Summary of Business Value

What is Agility? A-gil-i-ty (ə-'ji-lə-tē) Quickness, lightness, and ease of movement; To be very nimble The ability to create and respond to change in order to profit in a turbulent global business environment The ability to quickly reprioritize use of resources when requirements, technology, and knowledge shift A very fast response to sudden market changes and emerging threats by intensive customer interaction Use of evolutionary, incremental, and iterative delivery to converge on an optimal customer solution Maximizing the business value with right-sized, just-enough, and just-in-time processes and documentation

What are Agile Methods? ‘Adaptable’ system development methodologies ‘Human-centric’ method for creating business value ‘Alternative’ to large document-based methodologies Agile Manifesto. (2001). Manifesto for agile software development. Retrieved September 3, 2008, from http://www.agilemanifesto.org

Essence of Agile Methods High degree of customer & developer interaction Highly-skilled teams producing frequent iterations Right-sized, just-enough, and just-in-time process Highsmith, J. A. (2002). Agile software development ecosystems. Boston, MA: Addison-Wesley.

When to use Agile Methods On exploratory or research/development projects When fast customer responsiveness is paramount In organizations that are highly-innovative & creative Highsmith, J. (2003). Agile project management: Principles and tools. Arlington, MA: Cutter Consortium.

Myths of Agile Methods Common myths still abound, although agile methods have been around for ~15 years: Agile is only for software engineering Agile doesn’t scale to large systems Agile doesn't use project management Agile doesn't have any requirements Agile requires a traditional system architecture Agile doesn't have any documentation Agile isn't disciplined or measurable Agile has low quality, maintainability, and security

 TYPES of Agile Methods Agenda Overview of Briefing Intro to Agile Methods  TYPES of Agile Methods Practices of Agile Methods Studies of Agile Methods Costs of Traditional Methods Costs of Agile Methods Metrics for Agile Methods Comparison of Agile Methods Summary of Business Value

Crystal Methods Created by Alistair Cockburn in 1991 Has 14 practices, 10 roles, and 25 products Scalable family of techniques for critical systems Cockburn, A. (2002). Agile software development. Boston, MA: Addison-Wesley.

Scrum Created by Jeff Sutherland at Easel in 1993 Has 5 practices, 3 roles, 5 products, rules, etc. Uses EVM to burn down backlog in 30-day iterations Schwaber, K., & Beedle, M. (2001). Agile software development with scrum. Upper Saddle River, NJ: Prentice-Hall.

Dynamic Systems Develop. Created by group of British firms in 1993 15 practices, 12 roles, and 23 work products Non-proprietary RAD approach from early 1990s Stapleton, J. (1997). DSDM: A framework for business centered development. Harlow, England: Addison-Wesley.

Feature Driven Development Created by Jeff De Luca at Nebulon in 1997 Has 8 practices, 14 roles, and 16 work products Uses object-oriented design and code inspections Palmer, S. R., & Felsing, J. M. (2002). A practical guide to feature driven development. Upper Saddle River, NJ: Prentice-Hall.

Extreme Programming Created by Kent Beck at Chrysler in 1998 Has 28 practices, 7 roles, and 7 work products Popularized pair programming and test-driven dev. Beck, K. (2000). Extreme programming explained: Embrace change. Reading, MA: Addison-Wesley.

 PRACTICES of Agile Methods Agenda Overview of Briefing Intro to Agile Methods Types of Agile Methods  PRACTICES of Agile Methods Studies of Agile Methods Costs of Traditional Methods Costs of Agile Methods Metrics for Agile Methods Comparison of Agile Methods Summary of Business Value

Agile Project Management Created by Jim Highsmith in 2003 Tools to scale agile methods to large projects Cradle-to-grave ‘adaptive’ product management F/W Highsmith, J. (2004). Agile project management: Creating innovative products. Boston, MA: Addison-Wesley.

Release Planning Created by Kent Beck at Chrysler in 1998 Project plan with a 30-60-90-day timing horizon Disciplined and adaptable project management F/W Beck, K., & Fowler, M. (2004). Planning extreme programming. Upper Saddle River, NJ: Addison-Wesley.

Onsite Customers Term coined by Kent Beck in 1999 Customer who sits with developers full-time Fast and efficient way to capture customer needs Tabaka, J. (2006). Collaboration explained: Facilitation skills for software project leaders. Upper Saddle River, NJ: Addison Wesley.

User Stories Term coined by Kent Beck in 1999 Functions or features of value to customers Highly-adaptable requirements engineering process Cohn, M. (2004). User stories applied: For agile software development. Boston, MA: Addison-Wesley.

Pair Development Term coined by Jim Coplien in 1995 Consists of two side-by-side developers Highly-effective group problem-solving technique Williams, L., & Kessler, R. (2002). Pair programming illuminated. Boston, MA: Pearson Education.

Refactoring Term coined by William Opdyke in 1990 Process of frequently redesigning the system Improves readability, maintainability, and quality Fowler, M. (1999). Refactoring: Improving the design of existing code. Boston, MA. Addison-Wesley.

Test-Driven Development Term coined by Kent Beck in 2003 Consists of writing all tests before design Ensures all components are verified and validated Beck, K. (2003). Test-driven development: By example. Boston, MA: Addison-Wesley.

Continuous Integration Term coined by Martin Fowler in 1998 Process of automated build/regression testing Evaluates impact of changes against entire system Duvall, P., Matyas, S., & Glover, A. (2006). Continuous integration: Improving software quality and reducing risk. Boston, MA: Addison-Wesley.

Agile Documentation Myth that voluminous documentation is needed Myth that agile methods do not use documentation Right-sized, just-in-time, and just enough documents Rueping, A. (2003). Agile documentation: A pattern guide to producing lightweight documents for software projects. West Sussex, England: John Wiley & Sons.

 STUDIES of Agile Methods Agenda Overview of Briefing Intro to Agile Methods Types of Agile Methods Practices of Agile Methods  STUDIES of Agile Methods Costs of Traditional Methods Costs of Agile Methods Metrics for Agile Methods Comparison of Agile Methods Summary of Business Value

Surveys of Agile Methods Numerous surveys of Agile Methods since 2003 AmbySoft and Version One collect annual data Generally include both hard and soft benefits Rico, D. F. (2008). What is the return-on-investment of agile methods? Retrieved February 3, 2009, from http://davidfrico.com/rico08a.pdf

Studies of Agile Methods Agile (138 pt.) and traditional methods (99 pt.) Agile methods fare better in all benefits categories Agile methods 359% better than traditional methods Rico, D. F. (2008). What is the ROI of agile vs. traditional methods? TickIT International, 10(4), 9-18.

Projects Using Agile Methods Analysis of 23 agile vs. 7,500 traditional projects Agile projects are 41% better than traditional ones XP (56%) and Scrum (26%) better than trad. projects Mah, M. (2008). Measuring agile in the enterprise: Proceedings of the Agile 2008 Conference, Toronto, Canada.

 COSTS of Traditional Methods Agenda Overview of Briefing Intro to Agile Methods Types of Agile Methods Practices of Agile Methods Studies of Agile Methods  COSTS of Traditional Methods Costs of Agile Methods Metrics for Agile Methods Comparison of Agile Methods Summary of Business Value

Cost of Quality (CoQ) 1:10:100 ratio forms a basic model to estimate ROI Defects have negative multiplicative effect on cost Agile methods leave fewer defects (higher ROI) Boehm, B. W. (1981). Software engineering economics. Englewood Cliffs, NJ: Prentice-Hall.

Traditional Cost Models Cost estimation models still in use today Used to estimate effort of Traditional Methods Adjusted average of 5,088 used for ROI estimation Benediktsson, O., & Dalcher, D. (2005). Estimating size in incremental software development projects. Journal of Engineering Manufacture, 152(6), 253-259.

Total Lifecycle Costs 10% defect inject rate (1,000 defects/10 KLOC) 0.51 hours/line of code for Traditional Methods 10% defect inject rate (1,000 defects/10 KLOC) 67% of defects in test (33% in maintenance) Rico, D. F. (2004). ROI of software process improvement: Metrics for project managers and software engineers. Boca Raton, FL: J. Ross Publishing. In, H. P., et al. (2006). A quality-based cost estimation model for the product line life cycle. Communications of the ACM, 49(12), 85-88. McCann, B. (2007). The relative cost of interchanging, adding, or dropping quality practices. Crosstalk, 20(6), 25-28.

 COSTS of Agile Methods Agenda Overview of Briefing Intro to Agile Methods Types of Agile Methods Practices of Agile Methods Studies of Agile Methods Costs of Traditional Methods  COSTS of Agile Methods Metrics for Agile Methods Comparison of Agile Methods Summary of Business Value

Agile Lifecycle Cost Models Costs based on productivity and quality models Development costs based on LOC  productivity rate Maintenance costs based on defects  KLOC  MH Rico, D. F. (2008). What is the ROI of agile vs. traditional methods? TickIT International, 10(4), 9-18.

Agile Lifecycle Benefit Models Benefits based on total traditional less agile costs Traditional costs based LOC  dev.  maint. effort Traditional costs credited testing effort applied Rico, D. F. (2008). What is the ROI of agile vs. traditional methods? TickIT International, 10(4), 9-18.

 METRICS for Agile Methods Agenda Overview of Briefing Intro to Agile Methods Types of Agile Methods Practices of Agile Methods Studies of Agile Methods Costs of Traditional Methods Costs of Agile Methods  METRICS for Agile Methods Comparison of Agile Methods Summary of Business Value

Measures of Business Value A major principle of Agile Methods is creating value ROI is the measure of value within Agile Methods There are seven closely related ROI measures           Rico, D. F., Sayani, H. H., & Sone, S. (2009). The business value of agile software methods. Ft. Lauderdale, FL: J. Ross Publishing.

Data for Agile Methods Agile Methods were ranked based on ROI Agile Methods with high quality had higher ROI Agile Methods with high productivity had lower ROI Rico, D. F. (2008). What is the ROI of agile vs. traditional methods? Retrieved September 3, 2008, from http://davidfrico.com/agile-benefits.xls

 COMPARISON of Agile Methods Agenda Overview of Briefing Intro to Agile Methods Types of Agile Methods Practices of Agile Methods Studies of Agile Methods Costs of Traditional Methods Costs of Agile Methods Metrics for Agile Methods  COMPARISON of Agile Methods Summary of Business Value

ROI of Agile Methods XP ROI 18X more than traditional methods Scrum ROI 3.4X more than traditional methods Agile methods ROI 10X more than trad. methods Rico, D. F., Sayani, H. H., & Sone, S. (2009). The business value of agile software methods. Ft. Lauderdale, FL: J. Ross Publishing.

Agile vs. Traditional Methods All of the methods were ordered by ROI Agile Methods had a high ROI value of 3,102% Traditional Methods had a high ROI value of 4,133% Rico, D. F. (2008). What is the ROI of agile vs. traditional methods? Retrieved September 3, 2008, from http://davidfrico.com/agile-benefits.xls

 SUMMARY of Agile Methods Agenda Overview of Briefing Intro to Agile Methods Types of Agile Methods Practices of Agile Methods Studies of Agile Methods Costs of Traditional Methods Costs of Agile Methods Metrics for Agile Methods Comparison of Agile Methods  SUMMARY of Agile Methods

Summary Agility is the evolution of management thought Confluence of traditional and non-traditional ideas Improve performance by over an order-of-magnitude Rico, D. F., Sayani, H. H., & Sone, S. (2009). The business value of agile software methods: Maximizing ROI with just-in-time processes and documentation. Ft. Lauderdale, FL: J. Ross Publishing.

New Book on Agile Methods Guide to Agile Methods for business leaders Communicates business value of Agile Methods Rosetta stone to Agile Methods for traditional folks http://davidfrico.com/agile-book.htm (Description) http://www.amazon.com/dp/1604270314 (Amazon)